A few years ago, as a wedding gift of sorts, one of our writer’s friends was presented with stock in Advanced Micro Devices Inc. (AMD). Since that time, he has watched his stock plummet from over $40 a share to barely over $5 a share. The stock currently sits just under $7; still nowhere near the amount hoped for by not only his unfortunate friend but the many investors who planned to see AMD shine through.
The processors made by AMD are considered by many experts to be far superior to their #1 competitor, giant Intel Corp. (INTC). Despite their advantage in product and cost (costing much less than comparable Intel processors), AMD has yet to break through. Shareholders have been looking to the AMD leadership for answers…and aren’t getting any.
AMD Chief Hector Ruiz recently admitted to shareholders that the chip giant had a tough year in 2007, but vowed that changes were afoot to make the company “consistently” profitable. He made this claim without bothering to back it up with anything substantial. There were once rather strong hints of some serious changes to manufacturing operations, which only further worries certain investors who think that the company may break up.
Despite repeated prodding by analysts, the company has yet to spell out what the plan means, although some speculate that AMD was planning to turn over more, if not all, of its manufacturing to contractors, similar to the so-called fabless model now followed by other chip companies. This only heats the belief by some that AMD may be thinking about a breakup of the company.
From what Mr. Ruiz has said concerning profitability, it is possible that AMD may be about to make the biggest mistake possible: trading quality for lower prices. He said that AMD’s goal is to remain profitable whether or not it is in the technological lead. Should AMD abandon its record of designing faster, more reliable processors in exchange for making cheaper products, the friend’s stock could end up being virtually worthless.
AMD’s financial problems also have been exacerbated by the company’s ongoing efforts to digest its 2006 acquisition of ATI Technologies. Last year, the company got a boost when an Abu Dhabi development company pumped in $622 million in new investment.
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